Thursday, July 17, 2008
Dress-code politics
This train of thought started with a call from a friend about dress-code in his office. He's a senior partner at a law firm and he'd been in an argument with a young partner in the New York office about dress code. His question for me was what did I require for dress code in the office? (which I'll answer below)
But then I saw the WSJ article Dress-Code Politics: Who Wears the Pants? When a Man Regulates Attire At Work, Women Often See An Oppressor, Not a Mentor
It starts: "Jim Holt doesn't see himself as a "Neanderthal Man," but that's one of the nicer names he's been called since he expressed his view publicly, in this column, that panty hose are more professional than bare legs for working women". Unbelievably presumptuous. I love the story our client Valerie Malter from JP Morgan told me - when many years ago her boss told her she had to wear hose she asked him if he thought it would change her fund's performance? And he, of course, backed down.
Likewise I was horrified when I read the Washington Post article about the campaign rally with Michelle Obama and Michigan Gov. Jennifer M. Granholm. It is so blatantly sexist calling the tone an "estrogenfest" and commenting on the statuesque Mrs. Obama, baring enviably chic, muscular arms in a sleeveless sheath". That kind of coverage would be unthinkable (especially from a renowned paper) about two white men. Both women were very professionally attired!
Reality is we're still in an age when people make judgements based on what people wear rather than what they say or do. And men and women often underestimate the role their clothes play in how seriously people take them in the office.
So for the record, and in answer to my friends question, here's Penny's view on office dress code.
1. If you are meeting a customer or outside party, or there is a chance that you will - dress professionally. Smart, well-tailored, suit/dress/pant-suit. I don't subscribe to hose, but if you're not wearing hose the skirt shouldn't be too short. You represent the company, clients are going to pay money for the service, you should respect that with every aspect of their experience of you - including your clothes.
2. If you're definitely not going outside then I don't care provided you are clean, appropriate for an office (no thongs showing/bare midrifs etc.) and have showered. My California team sometimes wears shorts and that's OK with me.
The exception to this in my mind is if you are new and you want to be taken seriously I'd wear business casual until you've established your credibility.
#2 is the controversial one that I ended up debating with my friend. Does what you wear change the way you think in the office? Does it change your demeanour, your seriousness - even on the phone? If you come in wearing a collared shirt and dockers do you take yourself more seriously, and do other people subconsciously take you more seriously? I think it matters, but if you're going to stay on the inside all day in my company then it's your choice.
But don't be surprised if other people consciously, or unconsciously, judge you by what you wear.
When religous law pays off
Our system has been picking up an interesting counter-cyclical trend on an investment approach that has been buffered from the credit crunch recently - Sharia or Islamic compliant investing.
This is a practise that started in Malaysia three decades ago and it has been growing as the assets available have been growing in the Middle Eastern oil rich nations. New funds are being started - like the first of several new sharia-compliant hedge funds being started by Dubai based Millennium . As Reuters reports
The S&P global shariah index returned 3.61 percent in the second quarter, while the equivalent world index fell by 1.49 percent.
Banking stocks have been hammered by the credit crunch and exposure to the U.S. mortgage market. But as Islamic law prohibits the paying of interest, shariah investors -- most from Gulf states which are reaping the benefit of record oil prices -- cannot hold such stocks and have therefore been immune.
Wednesday, July 16, 2008
New York holds it's lead
Hedgeworld reports that New York still holds the lead in hedge funds over London, although the lead is dropping. There has been speculation that London is winning - but yesterday's article (you need a subscription and it's an interesting read) reports that
"Though there has been much discussion of the United Kingdom taking market share from the United States due to looser U.K. financial regulations, New York is still home to 40% of all global hedge fund assets. Another 26% of assets are managed elsewhere in the United States, chiefly in states like Connecticut, California, Illinois and Florida.
However, New York's 40% market share is down from 50% of total hedge fund assets in 2002, with institutional investors allocating greater sums of money to European and Asian hedge funds. Over that same five-year period, London saw total U.K. hedge fund assets double to about 20% of the global market share by the end of 2007, about $400 billion across 1,000 hedge funds."
Is security the difference?
We track topics for our clients - which means finding documents that match their interests - and one of the hot tech topics is "cloud computing". We call ourselves a SaaS - software as a service - application.
I was interested so see a thought provoking blog post in my daily report today on the difference between cloud computing and SaaS, but like many blog posts it got me thinking but didn't help me answer the question about how FirstRain fits.
The premise of the post is based on a Gartner report which says that the basic difference between the two is massive scalability. But that doesn't make pragmatic sense to me. Where do you draw the line between scalable, and massively scalable and does it mean anything practical in today's world of apps with hundreds to millions of users?
I think the difference may lie in security. KMWorld's recent article "Cloud computing and the issue of privacy" concludes that the heart of the issue is where the customer's data resides and how security is handled. On the one hand you have professional apps like Salesforce - and FirstRain - that use a SaaS business model (subscription), manage massively scalable data centers and store user confidential data on their systems, on the other you have the consumer apps.
Professional apps are paranoid about security - our customer's data is incredibly sensitive (we store user's portfolios of stocks and their investment themes - Salesforce stores the customer base and business pipeline) and so we have extensive processes to control the security of the data. Without it we would not deserve our customer's trust.
In contrast, Facebook and Google are relatively speaking pretty loose about security. From the KMWorld article
"I’m a trusting soul, but I have worked in and around online systems for more than 30 years. I have sitting not 10 feet from me a person who can write a script and suck content from any system to which she can get or has access. Privacy just like security is only as good as its weakest link."
I agree. I won't let my team use Google desktop search - I have friends who won't use Firefox - Facebook has stumbled several times already on privacy. The more you know about the weak links in security the more you know the public apps are not secure.
So I like security as the heart of the difference. Cloud computing implies a massively scalable off-site compute environment - I agree. But SaaS implies a professional app with all the attendant security and service that implies.
Tuesday, July 15, 2008
Order out of chaos
Katherine Heires wrote an in-depth article on the new space we're pioneering yesterday - Blogging Filters Bringing Order to Chaotic Content. She's done a good analysis of the new systems being developed to help investors make money from the web.
As blog postings and other content about stocks, market sectors, products and company actions permeate the Internet, time-pressed portfolio managers, traders and research analysts are finding it harder and harder to keep pace. But a new generation of research providers is working to change that with algorithms and pattern-matching technology that aggregates and analyzes a seemingly impenetrable body of information.
"In a market where prices are changing all the time, the person who has the best information about any event that might impact a trading price has an advantage--and that includes unstructured data that has been filtered for quality, reliability and relevance," says Patricia McGinnis, research director with IDC affiliate Financial Insights and co-author of a June report on the subject.
Katherine has interviewed me several times now and I was pleased with the section of her article about FirstRain.
"Blogs are where many of the most intriguing questions, trends and ideas first come to light," notes FirstRain CEO Penny Herscher, who calls them a "blind spot" for institutional investors. "Manually finding the meaningful information from the volume of meaningless chatter is just not practical, even for the largest firms."
Foster City, Calif.-based FirstRain last month introduced Blog Monitor, which uses an algorithm that looks at "prominence, reach and authority" to identify the most influential sites. A standard search engine relies on popularity as a measure, says Herscher.
"There is a big difference between working with a standard search engine, where you have to put in a query to get a response, and a continuous search service--which is what we do--that is reading all the blogs for you, prioritizing the information, normalizing it and proactively reporting information to you, for example, when there has been a volume change of activity," adds Herscher.
For the service, eight-year-old FirstRain built a Web-results database, prioritizing and pulling out trends from blogs, according to Herscher, who says the task wasn't easy. "The Web is so junky and chaotic and full of duplicate information," she observes, "but now that we have the database built, we can keep adding relevant analytics." The service, which allows users to select pertinent companies and topics, currently offers impact reports on the investing, technology, energy and health care sectors.
Monday, July 14, 2008
The legs keep pumping
More training for the FirstRain Aquabike team - we're now training together on both coasts. Three members of the NY team trained on Sunday - riding 50 miles and swimming 1. Another member of the team did a mini-triathlon to work on his transitions. And three of us from California competed in a "splash and dash" - 1.2 mile reservoir swim and a 5k run - although we didn't do the run.
All in all - excellent practise both physically and mentally and the team is excited. We're going to finish and have fun!
Ellen
Eugene and Ana at the start of the swim
Me coming to the end of the swimAnd then there were none
I knew there were fewer female board members in Silicon Valley than other parts of the country. I had felt the decline in female CEOs as I networked with my peer group. But I had not realised that we were one firing away from zero.
With Diane Greene being fired from VMWare under duress there are now no female CEOs in the top 150 companies. Diane is a loss. She is much admired. And she's an engineer (a rare breed to be female, powerful and an engineer in the Valley). I had dinner with her a few weeks ago where she was the keynote speaker at the ABI Women of Vision dinner. I think what I enjoy most about hanging out with her was that she is so grounded - her 9 year old daughter was on her lap much of dinner - she has no pretensions.
And clearly she, like Carly Fiorina, was not willing to let her board sugar coat what happened.
Friday, July 11, 2008
Chairman/CEO - or independent?
Many startups have the founder as both CEO and Chair. The company starts small, there are a few angels who come to board meetings but don't want to run the company, and then when venture capital comes in the VCs sit on the board and wield power but they rarely want to put the time in to be Chair.
So how, and when does the transition to a separate CEO and Chair happen? It turns out it doesn't the majority of the time, even though this separation is well recognized as being good governance. The WSJ journal reports that "Today, despite growing shareholder opposition, the CEO and the chairman remain the same person in 65% of the S&P 500 companies." in an excellent article about the Imperial CEO.
The problem is that in well run public companies the chair sets the agenda for the board meeting and drives the recruitment of new board members. Without an independent board there is a risk that insufficient checks and balances are in place for the CEO - as discussed here about the banking crisis. With CEO as chair s/he sets the agenda when planning the board meeting thereby exercising control of what's discussed.
So as a company grows up how can you manage this problem?
- First, nip it in the bud - assign an outside chair on the first infusion of venture capital. Smart VCs would make this a term of investment for companies they believe have the potential to go public.
- If that doesn't work then make the break on the IPO. These days bankers and lawyers wield so much power on that transition that they could easily team with the independent board members to insist. It does affect ISS governance ratings after all.
- And then finally, if you just can't separate the chair/CEO for personality reasons then be sure to name an independent director who is a strong personality - with a mind of his/her own - and willing to go nose to nose with the chair-CEO to get the right issues discussed and the right directors onto the board.
Nothing is worse for a company than a passive board. Speaking from my own experience - tough board meetings where I am challenged are the ones where I learn the most and make breakthroughs in my own assumptions.
Thursday, July 10, 2008
The ease of recruiting from Yahoo
A good friend of mine runs a silicon valley recruiting firm and was telling me today about Yahoo. Turns out she and her team are finding that Yahoo employees are loose at all levels: VP on down. They are pulling out programmers, architects, senior business folks, and - most scary for Yahoo - heads of technical teams.
I asked her why it's so easy? It's that people are returning calls promptly and they are ready to go. They see that Yahoo doesn't have a long term future against Google and Microsoft - they'll lose and so if you are a strong technical talent there are better places to be.
The majority of the hires are going to startups. Even though it's reported that venture capitalists confidence is dropping fast because of the lack of exits, new companies are coming up all the time, raising money and hiring. And experience from Yahoo is valuable.
The drain is probably also fed by the trend that computer jobs are hitting a record high, with unemployment rates in IT being half that of the country as a whole. Trained tech staff are in demand - and there are lots of them adrift around Yahoo.
Wednesday, July 9, 2008
Neurons and Alpha Bits
Guest post from Keith McCullough CEO/Chief Investment Officer at ResearchEdge
I posted on Keith's interesting new transparency model a few days ago - here's his thinking on the interaction of your brain and alpha in this bear market.
Mathematically speaking, “edge” is often alluded to in the investment community as “alpha”. We like alpha. Our team eats it for breakfast and washes it down with criticism and compliments alike. We know that as long as its taste remains in our bellies, we have something that will drive us toward getting up tomorrow morning.
This morning, and on those of the past few weeks, I have been waking up to increasing confirmation that we have had the “macro call” right. It’s been nine months since I left Wall Street, and while I sincerely hope that you don’t interpret my recent work as “I told you so”, I realize full well that hope is not an investment model. I have zero control over the dopamine and serotonin levels in your brain, particularly when it comes to colliding with the emotions associated with your making, saving, or losing money.
When it comes to money, the emotional impact on your brain is well researched. Richard Peterson wrote a fantastic book last year titled “Inside The Investor’s Brain – The Power Of Mind Over Money”, and I highly recommend it to anyone who is serious about trading this bear market actively. One of my favorite chapters is called “Overconfidence & Hubris”, and there you’ll find a discussion on the neurochemical balance of your investment thought processes. If you’ve already studied this, at a very basic level you know that there is a decrease in your brain’s dopamine levels at the exact time you thought you were going to be right, and weren’t. Yes, this is why some people do “dope”, it takes those worries away in the immediate term.
There is, of course, a legal solution to upping your dopamine levels – be right! As Peterson points out, “when a reward is found dopamine neurons reinforce the reward producing behavior… this is a process of learning via the dopamine pathway.” However he goes on to explain that the music of you’re being right can effectively stop, and “if a behavior is no longer rewarding, then norepinephrine levels increase in the brain. Norepinephrine stimulates scanning for new opportunities.”
These psychological facts should make perfect sense. If they don’t, you may be blessed with some Mr. Spock like “Vulcan” attributes that Peterson has some fun with. Most of us are human however, and should be very much aware that we are all going to be right and wrong over the span of an investment career. All the while, the art in making (or saving) money when others can’t lies in respecting that there are sciences at work within this complex global market ecosystem.
This morning for breakfast, as we scour the world and our respective models for those elusive “Alpha” bits, I wish you the best of luck. Our cumulative knowledge is more powerful than our individual emotions. Given that the 1st Nobel Prize in Economics was not awarded until 1969, there is plenty of creative destruction to look forward to. The evolution of investing is a process, not a point.
KM
Tuesday, July 8, 2008
Why would a CMO care about the web?
We have a client who is CMO of a large enterprise software company - and he and his team's use of FirstRain is an excellent example of the power of the web as a database for corporate decision making.
In this case we have build a model of the company and it's ecosystem that includes
- the company itself
- each of it's major competitors
- important industry trends (like business models and delivery mechanisms) and standards
- all web sources - both differentiated like blogs and industry media, plus the commodity like PR and news wires - effectively organizing all possible sources of information
- industry events
- industry trade shows
- companies of personal interest to the executives (you never know what someone will want to track)
The result is a rich intelligence system for the team that not only
a) finds them interesting information about their market and their competitors that they would have missed that impacts their product decisions, and
b) categorizes all information so it is useful, easily accessible and stored for historical review, but
c) also helps them shine in front of their peers because of the information they have at their finger tips when debating decisions.
And we have a happy customer which is what we care about.
Sunday, July 6, 2008
Training and raising money
We (the California FirstRain aquabike team) did a trial run in Sonoma yesterday. 46 of the 56 miles through beautiful vineyards, weaving by wineries, under a hot blue sky. But before you read more about the ride - consider this:
As part of this event I'm raising money for a non profit I have been involved with since it's inception. The fundraising is for CCPY - California Community Partners for Youth. CCPY works closely with 9th and 10th grade kids in San Jose to keep them in school. We work with the most at risk kids and, through a program of after-school, mentoring and wilderness training, we have an extraordinarily high success rate. CCPY has to raise $200k this year over and above the city and state grants we get - which is a typical climb we face every July - but we'll have a record 200 kids in the programs this coming year. It was started in the offices of my last company, Simplex, 9 years ago so I can vouch for the long term impact and health of the operation.
If you enjoy this blog and you'd like to help encourage me through the race on August 2 and give to the CCPY kids at the same time you can donate at CCPY and click on the PayPal button on the upper left. If you know me personally you know I'm not an athlete so this is a big leap for me and every ounce of support helps. Thank you to my friends who have already donated.
Here's the team that rode yesterday. Everyone completed it, some much faster than others, and the last hill at mile 43 kicked butt (kicked mine right off my bike and onto Shank's pony). Lots of jokes about how good (or bad) we all looked in spandex. It was great that we did a practise ride because we learned a lot about how much we have to hydrate, pace ourselves and eat through the race. It's so much hotter in Sonoma than where we all live in San Francisco and Silicon Valley that we were unprepared for how much water we'd need.
Then we went and swam in the Russian River at Johnson's beach to check out the temperature - and decided no wetsuits needed. The swim should be a lovely experience.
As I drove back I started to think about how much a company can change lives. I started out on this goal as a way to bring us together outside of the office, but I hadn't realized that several of the team would be so changed by it - training seriously for the first time in their lives - and that we're now talking about the next race, and staying in the sport after this race is over.
Angela, Ana, Todd, Luis, Eugene and Chien
Ana, me, Luis and Eugene
Thursday, July 3, 2008
Rents to fall?
We moved offices in California a few weeks ago - and in doing so I lost my beautiful view of the Oracle park across the water. And then I read in Footnoted.org that the Oracle square footage is shrinking dramatically.
In last year’s 10K, the company said that its headquarters facility in Redwood City was 3.8 million square feet. But in the current K, that number fell by nearly 50% to 2 million square feet. In the same paragraph, the company notes that due to restructuring and M&A, the company has shed about 400,000 square feet in the past year, but even assuming that all of that space was in Redwood City, that still leaves about 1.4 million square feet unaccounted for.
It appears from Michelle Leder's research that Oracle is moving so many jobs overseas that their real estate requirements here in Redwood city are shrinking dramatically.
Coincidentally, the WSJ also reports that Businesses Take Less Office Space Nationwide today.
Nationwide, rents on office properties -- including landlord concessions and discounts -- rose 0.7% in the second quarter to $25.16 a square foot, the slowest growth since the second quarter of 2005, when the office market was just emerging from a half-decade-long slump, according to Reis Inc., the New York real-estate research firm.
With inflation running roughly 1% a quarter, that rent growth is effectively wiped out. "Landlords are having to concede ground on rents and tenant improvements," says Sam Chandan, Reis's chief economist. "The balance is tipping in the favor of tenants in many markets."
But having just moved we know that the rents are not coming down in Silicon Valley yet. Despite the bear market, despite the looming recession, the technology business keeps cooking here.
We were previously in a beautiful office space on the 15th floor of a tower with panoramic views to the South and East across the Bay. We had found it 3 years ago going for a song ($1.85/sq ft) because of a bankrupt leaseholder subleasing at very aggressive rates. As the lease ran out we inquired about new rates to stay in the same space and were told it was now over $6! Needless to say we decided to move close by, into new space built to our spec but back at close to our original rent.
Apart from the loss of the view many things are better about our new space. More conference rooms (we are all in cubes so conference room space is precious for conference calls with NY and India, heated debates and problem solving), a much nicer kitchen, some open space for all hands meetings, and now we can bring our bikes into the office, instead of being told by burly security guards that they had to stay outside!
Tuesday, July 1, 2008
A new transparency?
One of FirstRain's friends, Keith McCullough , has formed a new firm called HedgeEye which "represents the cumulative knowledge of people and processes. We have decided that it is time for the investment community to abide by the same principles of transparency and accountability that you now expect from corporations and politicians".
So what does this mean to the investor or observer? Keith and his team are investing on behalf of themselves and their clients, but also publishing a continuous stream of research through the day providing "a daily synthesis of critical facts". Since Keith was an uber-succesful hedge fund manager at a series of firms (Carlyle Bluewave, Magnetar and Falconhenge) he has the track record to make visibility into his research compelling reading.
Keith writes detailed analysis of his trading decisions and investment strategies, and then at the beginning of every day he writes a more general opinion piece. I'm not trading (I'd never have the time to stay up on the decisions I made) but I read his research every morning to put my camel's nose under the tent. Today's piece Hedgeye's early look: Bubbleicious is an (albeit sobering) analysis to pop the pundits bubbles with his view of the compounding facts (reproduced in full here to give you a taste).
I think Keith's new model is an interesting one to watch. He and his team are providing enough insight that the investor can understand the substance of their decisions, but the sophistication of managing a successful portfolio is still required from the team so their results will be hard to duplicate. At FirstRain we're rooting for him.
Last night on Kudlow & Company, perpetual “Bull” Jerry Bowyer at Benchmark Financial was at the top of his vocal cords again, preaching that he doesn’t see the case for a US recession. Unfortunately, Bowyer is one of many visually challenged economists who didn’t see a global inflation and credit crisis coming 9 months ago either. Many of these “Fed Centric” economists are professional revisionist historians; use their self perceived edge at your own risk.
Now that 9 months have passed and plenty of US stock market strategists, economists, and portfolio managers alike missed that we were in “bubble” territory again, we have the emergence of self professed bubble experts popping up everywhere from Congress to Park Avenue. They are on CNBC. They are in the blogosphere. They are all over Wall Street trading desks. They don’t need a process. Heck, they don’t even need models! When these “bubble watchers” see a high price – they know it’s a bubble. These guys are good!
How could so many of these professional bubble watchers have missed both a US stock market bubble and a global one? Didn’t the CFOs who hedge funds pay the Street so much money for ‘one on one access’ give them a heads up? How is it that now, after the fact, they are so synchronously clairvoyant to be able to call bubbles in crude oil and commodities? Their powers of proactive prediction leave me in awe!
Back to reality, the Dow and S&P 500 have dropped for three straight quarters. Last time this happened for the Dow was 1978, and Paul Volcker had to ditch the political pandering Fed model of Arthur Burns and get busy doing some old school leverage bubble popping. For 2008 to date, the Dow and S&P 500 are down -14.4% and -12.8%, respectively. Rather than focusing on calling a top in crude oil (which incidentally isn’t happening again this morning as geopolitical risk increases within the construct of a potential Israeli/Iranian conflict), maybe the bubble watchers should consider that the real bubble that’s about to pop is the short term reactive investment model they live in.
Asian and European markets are in freefall again this morning after suspiciously “stagflationary” data points hit the tape. China reported their lowest PMI report in 3 years; Indian exports slowed to +13% year over year in May versus +32% reported in April; and Thailand’s inflation rate shot up to a 10 year high of +8.9%. Chinese stocks got slammed again as a result, trading down another -3. 1% overnight, putting the Shanghai Index -57% from its October 16th 2007 “its global this time” bubblelicious high. The Indian stock market fared even worse, closing down another -3.7% to kick off Q3, putting its cumulative decline for the year to date at 3x that of the S&P 500. Good thing the private equity community who poured capital into India in Q108 at a record high pace saw that bubble coming!
After Denmark officially got the nod as the 1st country in the EU to move into recession territory (2 consecutive quarters of negative growth), European investors continued to run for the exits. We’re seeing a material selloff in Europe (UK -2.8%, France -2.6%, Spain -3.3%, Germany -2.2%, Ireland -3.9%, Finland -2.4%, etc…) ahead of a very likely rate hike by the ECB on Thursday. Since, German unemployment hit a 16 year low this morning, it is going to be very difficult to get the bankers at the Bundesbank to pander to US investment banking needs and tone down their hawkish rhetoric. The Europeans are proactive bubble watchers at least. I’ll take proactive over reactive risk management all day long.
European, Asian, and Latin American central bankers continue to have this right. The only thing worse than US Stagflation is Global Stagflation. They are going to continue to proactively manage toward this risk, while the politicized Bernanke Fed sits on its hands and watches the US Dollar get trampled.
Good luck out there today, KM
Monday, June 30, 2008
Joining the board of Investorside
As we announced today - I've joined the board of the non-profit group Investorside. This is a trade association with a mission to "increase investor and pensioner trust in the U.S. capital markets system through the promotion and use of investment research that is financially aligned with investor interests".
The need for a group like Investorside grew out of the mistrust investors felt for research after the research/banking conflicts became visible in 2001. Sellside researchers were promoting stocks long after they knew they were a bad investment, in order to keep the investment banking fees, and so their own fees going.
Today the group's members are investment research firms "providing research that works purely for investors".
FirstRain is used by investors and by corporations today - both when the goal is to do institutional grade research from the web. When I was approached to get involved in Investorside, and to serve on the board, I thought it was a very good fit. It's an opportunity for me to help the research community using my experience in web 2.0 and growing markets, and it's an opportunity for me (and FirstRain) to continue to grow in our understanding of the research needs of the investment community.
Here's the expanded mission:
The Investorside Research Association serves its members through three primary functions:
Certifying Research Providers — Investorside certifies that its members are free of investment banking, consulting, and research-for-hire conflicts and provides certified member firms with the trademarked Investorside Seal.
Promoting the Growth of Independent Research — Through Investorside.org, annual conferences and regular media communication, Investorside markets its member firms to individual and institutional investors.
Promoting Government Policy that Encourages the Use of Independent Research — Investorside represents its members' interests before regulators, law-makers and members-of-industry, promoting the use of investment research that is aligned with investor interests.
Sunday, June 29, 2008
Why didn't the bank's boards see it coming?
It's a good question - how much are the boards of the financial institutions responsible for the current banking meltdown? The FT poses this question in a great article from last week Gone by the board? Why bank directors did not spot credit risks - worth a read.
Following the layoffs of more than 83,000 people, and the continues credit crisis "Yet amid this purge, one important constituency in the global financial markets has survived virtually unscathed: ordinary board directors. With the exception of board members at companies that imploded, such as Bear Stearns in the US and Northern Rock in the UK, it is hard to name a director who resigned or otherwise accepted responsibility for the mistakes suffered by the financial institution in his or her care."
It's a difficult question to answer. Were the boards "asleep at the switch" or was this a result of the complex Sarbox processes which keep boards focused on governance and measurable results and, with it's focus on independence, may have taken out the very people who understood the businesses off the boards. Plus for many complex businesses it's hard to find outside directors now - it's not worth the risk.
And then there is the question of the role of the CEO and management. "But even if Sarbox contributed to what one executive calls CYA (“cover your arse”) compliance, it cannot fully account for boards’ inability to act in the run-up to the crisis. Present and former directors say the main problem is management’s overwhelming influence on boards’ inner workings.
By controlling the type of information flowing to and from the board and directing the interaction with directors – down to details such as the time and frequency of meetings, their agendas and even the seating plans – executives have powerful weapons to shape the board’s thinking. “CEOs call it ‘care and feeding of the board’,” says a consultant who has worked with several boards. “Top executives are, by nature, control freaks and want to carefully stage-manage their dealings with directors so as to avoid awkward questions.”"
I see the world from both points of view. I'm a CEO trying to ensure my board always has complete information to advise me from, but knowing they meet once every 6 weeks and have many other demands on their time (like running an hedge fund, running a large VC firm, being on several other boards etc.). It takes great attention to detail on my part in preparation for every meeting to make sure they have all the information they need.
And I sit on boards. For profit and non-profit. And I can tell you I really appreciate the management teams who make the effort to keep me up to date at and between meetings so that I am not surprised at the turn of events.
Thursday, June 26, 2008
Reorganizing today
When your company is growing and learning reorganization is a fact of life – and when it’s time, it’s time. I've restructured some parts of FirstRain this week and working through it is a reminder of many of the lessons I’ve learned over the years.
The change we needed to make is to organize the company for the future and to take advantage of all our progress. FirstRain the company, and FirstRain the platform, has grown dramatically in the last 2.5 years as we’ve developed the technology. Dramatic increases in automation and technology capability; dramatic increases in the depth of research and analytics IP behind the system as we’ve built our team in Gurgaon; we’re automating all our internal processes and now our many clients are across the US and Europe so we need mobile employees.
And the net result is a handful of jobs which were needed in the past but are not needed in the future, or the job has changed materially – which means a few people are leaving the company. At the same time we’re continuing to hire in to new positions in R&D, sales and customer service as we invest in our growth.
As a CEO, or manager, sometimes you just have to make tough decisions. Everyone I’ve ever worked with for any length of time is a good person, working hard for the company. And yet, when someone’s skills aren’t right for the job, or the job is no longer the right job for the company, you have to act in the best interests of the company and the individual involved.
I hold “all hands” meetings with FirstRain frequently where I share everything that’s going on with the company – and I held one today to talk about the new organization. I think I have an obligation to be completely open with my team all the time – after all they are investing their careers in my company and working shoulder to shoulder with me to create a great solution to a hard problem for our customers.
Wednesday, June 25, 2008
Predicting crises from the news stream
One of the technology capabilities we have in our system is looking for patterns in streams of data coming from the web. We use it to tag events, detect events and as a result pull interesting documents out of the web for our clients.
But we're not alone in this kind of work, obviously. Wired has an article this week about how the EUs joint research team has developed the EMM: European Media Monitor which is designed to detect patterns in the stream of data.
So what patterns does EMM find? Besides sending SMS and email news alerts to eurocrats and regular people alike, EMM counts the number of stories on a given topic and looks for the names of people and places to create geotagged "clusters" for given events, like food riots in Haiti or political unrest in Zimbabwe. Burgeoning clusters and increasing numbers of stories indicate a topic of growing importance or severity. Right now EMM looks for plain old violence; project manager Erik van der Goot is tweaking the software to pick up natural and humanitarian disasters, too. "That has crisis-room applications, where you have a bunch of people trying to monitor a situation," Van der Goot says. "We map a cluster of news reports on a screen in the front of the room — they love that."
Clustering technology is being used in ever wider applications to find what's interesting from the petabytes of data we now see on the web. We're just one cool application of it, but the technology space itself is fascinating and fast paced.
The Free Content movement continues
I was struck by the juxtaposition of two articles in the last 24 hours
- Thomson Reuters plan to take share from Bloomberg and
- NYSE releasing real time quotes to the public.
Seemingly unrelated right?
Underlying both is a theme of how the ongoing trend to free content is shaping their competitive strategies and responses.
Thomson Reuters believes it can use price to take Bloomberg market share - Bloomberg being notorious for having fixed pricing and not discounting - and being expensive as a result. And the impact of free web content impacts how users view the terminals:
Neither company has sorted out a strategy for competing with online services. Michael F. Holland, the chairman of Holland & Company and the former chief executive of First Boston’s asset management division, said he can no longer justify a Bloomberg terminal for his current role and often turns to the Web for data. He first used a terminal in the 1980s and remains a fan: “There really is nothing else that’s quite like the Bloomberg,” he said. “From the beginning, it has provided incredible information. But at a very high price.”
And when asked what Google Finance and Yahoo Finance might mean for Bloomberg’s future over time, Mr. Grauer paused. “I don’t know how to answer that,” he said. “I really don’t know how to answer that.”
And John Blossom's comment in his summary of NYSE's move is right on:
It is, unfortunately, a familiar refrain in the content industry: major institution covets proprietary content revenues, squeezes them out for as long as possible while the markets move to find both acceptable substitutes and better ways of doing business. Publishing is in essence a very conservative business, so it's not surprising that NYSE would try to keep this formula going for so long. But in an era when the buyers of securities have and demand information at least as good as most selling institutions failing to serve the buy side in financial markets effectively is to ignore the fundamental shift in the content industry that empowers people with independent access to content from around the world. Your content may seem safe as a proprietary asset, but if it's not driving your clients' profits in its most valuable user-defined contexts it is far from a safe bet in today's content markets.